Bond trading is often overlooked by beginning investors, but it can be a highly profitable business. Bonds are debt securities issued by companies and governments that pay out regular yields until the contracts reach maturity. When you purchase a bond, you're essentially lending money to the institution that issued it in return for interest payments called the yield. The main methods for evaluating bonds are the bond rating, the yield and the current price of the bond.
Monitor the ratings of the bonds you're looking to purchase. The most outstanding bonds are the ones with the highest ratings by the major credit bureaus: Standard & Poor's, Moody's and Fitch Group. You may check the ratings of any bond by entering it into the bureau websites. Higher-rated bonds have lower yields, but the low risk of default of such instruments generally gives them a higher price.
Look at the yields offered by the bonds that you're investing in. Typically, bonds that have the highest yields also have the lowest ratings and lower prices. These bonds, termed "junk bonds," can be bought at a low price, speculating that the issuer will improve in performance and the bonds will end up paying off significantly. Depending on your level of risk tolerance, investing in bonds based on high yield may be an attractive strategy.
Check bond prices to determine the best course of action for your investments. Bond prices move up and down depending on market perceptions of the value of the bond. The initial price of the bond is called the "issue price," and the price on the secondary market is simply termed the "market price." Higher priced bonds are not necessarily good long-term investments, as they may turn out to pay less in yield than their purchase price if the security is trading at a premium.
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